What Is a SKU? How to Use Stock Keeping Units in Your Business

Key Takeaways

1. A SKU is a unique 8–12 character code businesses create to track products internally.
2. SKUs help with inventory, order fulfillment, restocking, and sales analysis.
3. SKUs differ from UPCs, barcodes, and serial numbers—each serves a different purpose.
4. Good SKUs use clear product attributes, simple formats, and avoid confusing characters.
5. SKUs aren’t universal, but they improve accuracy, efficiency, and customer service.

As online shopping platforms continue to grow swiftly, effective inventory management has become increasingly essential. SKUs (abbreviation for stock keeping units) are instrumental in this regard. But, what is a SKU and what does it stand for in sales? This guide provides a comprehensive overview of SKUs and their crucial role in optimizing business operations. It covers their meaning and purpose, how to create SKU numbers, how long they should be, the distinction between SKUs and UPCs, and clarifies the relationship between SKUs, barcodes, and serial numbers. Additionally, it addresses frequently asked questions about SKUs, offering valuable insights.

What Is a SKU?

By definition, an SKU is a unique code designated for each product in a company’s catalog, aiding in internal tracking and inventory management. It comprises a mix of letters and numbers that convey various product attributes, such as manufacturer, brand, style, color, and size, making it easier to differentiate between similar items. Each company generates its unique set of SKUs tailored to its product offerings. While different companies may sell the same items, such as yoga pants, they typically use distinct internal codes to manage their inventory. How many digits should the SKU generator produce? Most codes typically range from 8 to 12 characters. You can find free SKU generator tools to produce your own codes for your inventory items.

SKU Number Example

An illustrative example of a SKU number might be “DRE-FLR-12.” In this example, “DRE” serves as the product identifier, specifying that the item is a dress. Following that, “FLR” stands for “floral,” describing the pattern or design of the dress, while “12” denotes the size variant of the dress. This structured format enables precise identification and categorization of products within the inventory system, facilitating efficient management and retrieval processes.

What Is the Purpose of a SKU?

SKUs serve as standardized identifiers crucial for product identification and tracking within a company’s inventory management system. They play a pivotal role in accurately monitoring product movement and stock turnover. Besides, SKUs categorize products based on attributes, optimizing storage and improving inventory accessibility. By providing unique codes, SKUs expedite order fulfillment processes, support in-depth sales analysis, and enable precise tracking of product variants. Furthermore, they streamline replenishment orders, enabling proactive inventory management to efficiently meet customer demand.

What Is SKU Used for in Retail Business

In retail business, SKUs serve as essential identifiers for products, facilitating various operational aspects:

• inventory management: These codes enable retailers to track and manage inventory efficiently, ensuring accurate stock levels and minimizing discrepancies;
• order fulfillment: SKUs streamline the process of picking and packing orders by providing clear identification of products, minimizing errors, and enhancing overall efficiency;
• stock replenishment: SKUs help retailers monitor product demand and determine when to reorder stock, ensuring shelves remain adequately stocked to meet customer needs;
• sales analysis: SKUs provide valuable data for analyzing product performance, identifying top-selling items, and making informed decisions about pricing, promotions, and product assortment.

Besides, SKUs facilitate quick and accurate identification of products, enabling retailers to provide prompt assistance to customers and enhance the overall shopping experience.

How to Make Your Own SKU Numbers

To create custom SKU numbers tailored to your business needs, follow these systematic steps:

1. Identify key attributes: Determine essential product characteristics to include in the SKU, such as brand, category, size, and color.
2. Establish a format: Decide on a SKU format reflecting the identified attributes. Choose between alphanumeric or purely numeric formats based on inventory complexity.
3. Assign codes: Assign unique codes for each attribute within the SKU format, ensuring clarity and consistency to avoid inventory confusion.
4. Organize hierarchically: Arrange attributes hierarchically within the code, starting with broader categories and progressing to specific details for easier identification.
5. Test and refine: Pick some samples to test the system to ensure it captures all necessary product details. Make adjustments as needed for clarity and accuracy.

Furthermore, the SKU system must be regularly reviewed and updated to accommodate changes in product offerings or business requirements, maintaining flexibility and adaptability for efficient inventory management. Make sure all team members understand its structure and usage.

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Difference Between SKU and UPC

The difference between SKUs and UPCs (Universal Product Codes) lies in their respective roles and purposes within inventory management and retail operations. As discussed, SKUs are internal tracking codes specific to individual companies or retailers, used for identifying and managing products within their inventory systems. Conversely, UPCs are universal identifiers assigned to products by manufacturers or suppliers, facilitating product identification at the point of sale across various retailers and distribution channels. These standardized barcodes allow scanners to retrieve product information from retailers’ databases during checkout, streamlining transactions and inventory tracking.

Is SKU the Same As Serial Number?

You may wonder whether a SKU is the same as a serial number. No, it isn’t. Although both are employed for product identification, they fulfill separate functions and encompass different kinds of data. While you may already be familiar with SKU guidelines, it’s worth noting that a serial number serves as a unique identifier assigned to each product unit by its manufacturer. These numbers distinguish between separate units of the same product, enabling traceability and warranty tracking. They provide detailed information about specific manufacturing details, including batch number, production date, and other relevant data.

SKU vs. Barcode

As for SKUs vs barcodes, these codes serve different purposes. Barcodes, such as UPC and EAN (European Article Number), are graphical representations of machine-readable data, usually presented in parallel lines of differing widths. They encode product details in a standardized format for quick scanning at checkout, facilitating efficient transactions and accurate inventory tracking. In contrast, SKUs contain more detailed attributes and are used for internal product identification and management within the inventory system of a company.

Common Mistakes to Avoid with Stock-Keeping Unit Numbers

To manage SKUs effectively and avoid inefficiencies in inventory management, it’s essential to avoid common mistakes. Here are some key practices to follow:

• ensure SKUs follow a standardized structure with essential product attributes to maintain clarity and consistency;
• avoid creating overly complex codes that can make inventory management more challenging and increase the likelihood of errors;
• regularly audit SKUs to identify and resolve issues such as duplicates, inconsistencies, or outdated information to maintain inventory record integrity;
• avoid using problematic characters like slashes and spaces, leading zeroes, and long numeric values in SKUs to ensure compatibility with software tools like Excel;
• avoid starting SKU numbers with “0” to make it easy to read and ensure accurate tracking, as some inventory programs may misinterpret it as zero quantity, leading to tracking errors;
• don’t use letters that resemble digits, such as uppercase “O” for zero and lowercase “L” for one, to prevent confusion.

By adhering to these best practices, companies can optimize their inventory management workflows and maintain accurate records of their SKU codes.

SKU Numbers FAQ

Let’s explore some FAQs about SKUs to gain a deeper insight into how these unique identifiers streamline inventory tracking and enhance organizational efficiency.

Bottom Line

In summary, SKUs are indispensable tools for efficient business inventory management. Their meticulous assignment and organization play a crucial role in enabling companies to streamline operations, optimize supply chain logistics, and enhance overall productivity. By implementing a robust SKU system that aligns with the unique needs and goals of the business, companies can maximize efficiency and stay ahead in today’s competitive landscape. Furthermore, continuous refinement and adaptation of the SKU system ensure its relevance and efficacy in meeting evolving market demands and business objectives, thereby reinforcing its significance as a cornerstone of operational excellence.